DCIT, C-2, AJMER V. ANANT AUTO, BEAWAR

ITA 65/JPR/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3004 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 14-07-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MUKESH AGARWAL
• Keywords: Rectification of order; Opportunity of being heard; Audit objection; Tax effect; Additional evidence; Assessment record
• Section: 154; 143(3)

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’B’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 65/JP/2021 fu/kZkj.k o"kZ@Assessment Year :2014-15 Dy. Commissioner of Income-tax, Circle-02, Ajmer cuke Vs. M/s Anant Auto, I/S Chang Gate, Near Church, Beawar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAIFA7886J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Mukesh Agarwal (CA) jktLo dh vksj ls@ Revenue by : Ms Runi Pal (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 12/04/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 05/05/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by revenue and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 17/05/2021 [here in after (NFAC)] for assessment year 2014-15. 2. The hearing of the appeal was concluded through video conference by both the parties in view of the prevailing situation of Covid-19 Pandemic 3. Brief facts of the case are that the revenue has taken following grounds of appeal, which is reproduced here in below: ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 2 “1. Whether on the facts and circumstances of the cases, the learned CIT(A) NFAC, Delhi was justified in allowing the appeal of the assessee by deleting the disallowance of Rs. 5,80,000/- made by the AO on account of excess remuneration paid to partners in contravention of section 40(b)(v) of the Act and beyond the provision under the partnership deed. 2. The appellant craves to add, amend, alter, delete or modify the above ground of appeal before or at the time of hearing.” 4. The only ground in this appeal raised by the department, is an action of NFAC deleting an amount of Rs. 5,80,000/-made by AO alleging that there is an excess payment of remuneration to partners in contravention of provision of section 40(b)(v) of the Act. 5. The ld. AR of the assessee has challenged the maintainability of the appeal of the department drawing our attention to latest Circular No. 17/2019 of the CBDT dated 08/08/2019. He has further alleged that as per that circular, there is no exception as available in earlier circulars No. 3/2018 dated 20/08/2018 and therefore, this appeal is not maintainable. 6. On the other hand, the ld. DR has filed the clarification dated 21.10.2021 obtained from the Assessing Officer and the observations of the Assessing Officer on this issue is extracted herein below. “Kindly refer to you letter no. 180 dated 20.10.2021 on the subject cited above. 2. In connection to the same it is submitted that in the case of M/s Anant Auto, Beawar, PAN: AAIFA7886), for the A.Y. 2014-15 assessment was completed u/s 143(3) of the Income-tax Act, 1961 on 19.12.2016 on total income of Rs. 21,01,746/- by ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 3 disallowing various expenses amounting to Rs. 40,000/-. Thereafter, Revenue Audit raised an audit objection in this case. 3. A notice u/s 154 dated 06.07.2018 was issued to the assessee for rectifying the mistake, after taking necessary approval from 0/o the JCIT Range-2, Ajmer. However, no reply was submitted from the assessee therefore, rectification order u/s 154 was passed on 28.01.2019 by adding the excess remuneration amount of Rs. 5,80,000/- as suggested by Revenue Audit. 4. Being aggrieved with the order of the AO, assessee preferred an appeal before the CIT (A), Ajmer. The appeal was subsequently migrated to NFAC. The Ld. CIT(A) NFAC vide his order Appeal No. 10995/2018-19 dated 17.05.2021 has dismissed the appeal of the assessee. 5. Since, this case is a subject matter of Revenue Audit Objection and it is covered in the exceptional clause mentioned in Circular No. 03/2018 dated 11.07.2018 issued by the CBDT and its amendments dated 20.08.2018 and 08.08.2019., the undersigned is of the humble opinion that further appeal should be maintained in this case even the tax effect in this case is below the monetary limit is below the tax limit prescribed by the CBDT for filing further appeal.” ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 4 7. We have pursued the circular, submission made by the ld. DR on three occasions dated 17/11/2021, 30/11/2021 and 19/01/2022 placing the contention about the maintainability of the appeal. We have gone through the CBDT’s instructions and we find that even though the latest circular has only enhanced the limit but in the absence of any clarification, it is our view that the earlier instructions shall continue to prevail to that extent of filling an appeal on audit objection. Therefore, and therefore, since the issue is related to the audit objections, this appeal is maintainable and the contention of the ld. AR is not considered. 8. Even though, the limit is below threshold limit prescribed by the CBDT, this appeal is maintainable as there was an audit objection on the issue and therefore, the appeal is decided on merit. 9. The assessment in this case for Assessment Year 2014-15 was made u/s 143(3) dated 19.12.2006. Subsequently, it came to the notice of the Assessing Officer that the remuneration amounting to Rs. 8,80,000/- was allowed to partner but Rs. 3,00,000/- is maximum remuneration limit as per IT. Act, 1961. Thus, the excess remuneration amounting to Rs. 5,80,000/- is not allowable and therefore, a notice u/s 151 of the Act was issued to the assessee firm on 06.07.2018 which was duly served upon the assessee, pointing out the proposed rectification based on the information available on record. The Assessing Officer further observed that the assessee firm has not offered any explanation. Therefore, Assessing Officer has proceeded to pass rectification order dated 28.01.2019. ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 5 10. Aggrieved from the said order of the Assessing Officer passed u/s 154 of the I.T. Act. The assessee has preferred the appeal before the ld. CIT(A) raising two grounds which are as under:- “The appellant has challenged the said order with the following grounds of appeal: 1. That the AO was not justified in law and on facts of the case in passing the rectification order u/s 154 without providing opportunity to the assessee. 2. That the AO grossly erred in law and on facts of the case in holding that Rs. 3,00,000/- is maximum remuneration limit as per I.T. Act and disallowing so called excess remuneration paid to working partners u/s 40(b). ” 11. The ld. CIT(A) has given his observation and decision on para 4 which is abstracted as under:- “4.0 Observations, Findings and Decisions 4.1 I have perused the rectification order passed u/s 154 by the Assessing Officer (AO), replies submitted by the appellant, remand report of the AO and the appellant response with respect to the remand report of the AO. With respect to the first issue that the AO was not justified in law and on facts of the case in passing the rectification order u/s. 154 without providing opportunity to the appellant, it is noted that the AO has very clearly stated in the rectification order as well in the remand report that notice under section 154 was issued and duly served on the appellant. During the remand proceedings also, the opportunity of being heard was provided and appellant was heard on 30/05/2019. In compliance to the same a supplementary copy ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 6 of partnership deed was also submitted by the appellant before the AO. The appellant also in its response submitted pursuant to the remand report of the AO, has not objected that the opportunity of being heard was not provided by the AO. Therefore, I do not find any merit in the first ground raised by the appellant and the same is accordingly dismissed. 4.2 The second ground of the appellant is that the AO grossly erred in law and on facts of the case in holding that Rs.3,00,000/- is maximum remuneration limit as per I.T. Act and disallowing so called excess remuneration paid to working partners u/s. 40(b). In this respect, the AO in the rectification order has observed as under:- "Assessment in this case for the AY 2014-15 was made u/s 143(3) on 19.12.2016 on the total income of Rs. 21,41,746/-. Subsequently, it has come to the notice that the remuneration amounting to Rs.8,80,000/- was allowed to partner but Rs.3,00,000/- is maximum remuneration limit as per Income Tax Act, 1961. Thus, the excess remuneration amounting to Rs. 5,80,000 is not allowable. Therefore, notice u/s 154 was issued to the assessee firm on 06.07.2018 which was duly served upon the assessee pointing out to the proposed rectification to the mistake. In response to the said notice the assessee firm has not offered any explanation in this regard which indicates that the assessee firm has nothing to say in this regard" In the remand report submitted by the AO has relied on para 12(ii) of the original partnership deed, which allows a maximum ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 7 sum of Rs 3 lakh to be paid to working partners. The appellant in the remand proceeding before the AO had also submitted a copy of the supplementary Deed of Partnership dated 1/4/2011, according to which such maximum remuneration is Rs 30 lacs as per para 12(ii). However, it seems that supplementary partnership seed has not been looked at by the AO. The copy of the supplementary Deed of Partnership dated 1/4/2011 is also submitted before me which clearly states that the maximum remuneration which can be paid to the working partners is Rs.30 lacs. Therefore, I find that remuneration of Rs 8,80,000/- allowed to partners during the year under appeal is within the limit duly authorized by the Partnership Deed as well as section 40(b)(v) of the IT Act, 1961. Accordingly, this ground of the appellant is allowed.” 12. Since the ld. CIT(A) has allowed the appeal of the assessee, the department has preferred this appeal on the solely ground of deletion of an excess payment of remuneration of Rs. 5,80,000/-, paid to the partners in contravention of the provisions of section 40(b)(v) of the Act. In this appeal, the ld. DR has argued that ld. CIT(A) has considered the additional evidence in the form of supplementary partnership deed and the copy of audit report of earlier year without calling for the remand report from the Assessing Officer. Therefore, the action of the ld. CIT(A)/NFAC is not in accordance with law and the action of the assessee is nothing but and afterthought there are no such mention of the supplementary deed in the audit report for year under consideration and therefore, the ld. DR argued that the action of Assessing Officer should be confirmed and the order of ld. CIT(A) be quashed. ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 8 13. On the contrary, the ld. AR appearing for the assessee submitted that copy of the supplementary deed which is executed on 1 st April, 2011 at assessee’s paper book and also filed the copy of the audit report for Assessment Year 2012-13 wherein there is allowance higher remuneration based on the change in remuneration clause in partnership deed. In the light of two set of evidences when these records are forming part of assessment records, for earlier year, there is no need to call for the remand report of the Assessing Officer at the stage of ld. CIT(A)/NFAC and therefore, we find no infirmity in the finding of the ld. CIT(A)/NFAC and the action of ld. CIT(A)/NFAC is considered and the appeal of the department considering the above finding on fact placed by the assessee is considered and ground for disallowance at Rs. 5,80,000/- raised by revenue is dismissed and thus the appeal of the revenue is dismissed. In the result the appeal of the revenue is dismissed. Order pronounced in the open Court on 05/05/2022. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 05/05/2022 *Ganesh Kr. vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Dy. Commissioner of Income-tax, Circle- 2, Ajmer 2. izR;FkhZ@ The Respondent- M/s Anant Auto, Beawar, Rajasthan 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) ITA No. 65/JP/2021 DCIT, Circle-2, Ajmer Vs. M/s Anant Auto, Beawar 9 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No. 65/JP/2021} vkns'kkuqlkj@ By order, lgk;d iathdkj@ Asst. Registrar